In the previous lesson we identified the two main types of Forex brokers; Dealing Desk and Non-Dealing Desk, also abbreviated as NDD. In the later category, there are more variants such as the Straight Through Processing broker (STP) and ECN broker. In this lesson, we will explain both types of Forex brokers.

What is an STP Broker? A NDD Broker

As the name implies, Forex brokers that have an STP system route the orders of their clients directly to their liquidity providers who have access to the interbank market.
When in STP mode, placing the orders to closing them is done automatically without the manual intervention of any broker.

Advantages of an STP Broker

  • Prices quoted are likely to be volatile making them better for scalping strategies

  • You can trade live and direct from interbank market, using the best bid and ask quotes

  • Tightest spreads may be zero

Disadvantages of an STP Broker

  • Trading platform is complex and not designed for retail traders

What is an ECN Broker?

ECN stands for Electronic Communications Network. In simple terms, ECN Forex brokers allow their clients' orders to interact with the orders of other participants in the network, meaning trading against each other. These participants, banks, retail traders, hedge funds, as well as other brokers trade against each other by offering their best bid and ask prices.
ECN brokers improve market transparency to their clients through the Depth of Market (DOM). Depth of Market is a data window that displays where the buy and sell orders of other market participants are. With ECN brokers, all transactions are processed directly on the interbank market in No Dealing Desk mode. ECN brokers usually get compensated by charging a small commission on the traded volume.

Advantages of an ECN Broker

  • Directly access the interbank market for real time trading

  • Trade live and direct using the best bid and ask quotes from the interbank market

  • Tightest spreads which can be zero at times

Disadvantages of an ECN Broker

  • ECN trading platform is complex as it was not designed for retail traders

  • Limited trading signals and trading tools such as news feeds

  • ECN brokers generally charge a commission on every trade

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